Here's What No One Told You About The Supposedly Great Jobs Report

With a really fantastic headline number coming from the Establishment Survey, we thought we’d take a closer look at the other side of the coin. The Household Survey showed the following today:

• a decline of 330,000 in the number of people employed;
• a decline of 254,000 in the labour force;
• a decline in the employment-population ratio to 58.3% from 58.5% in September;
• an increase of 462,000 in those not in the labour force; and
• an increase of 76,000 in the number of people unemployed.

The drop in the number of employed is concerning – and brings into question the disparity between the labour force and unemployment statistics in the Household Survey, and job creation indicated by the establishment surveys. These were not small differences

The take-away is that final demand in the U.S. can only be generated through an increase in the number of people with jobs and/or the wages earned by those employed. A material decline in the number of people employed (especially with only meager changes in hour’s worked and hourly wages) is not consistent with an improvement in final demand.

Furthermore, one questions why – with the Establishment Survey showing such a robust number – people are exiting the labour force, rather than entering it in response to employment opportunities?

The disparity between what the Household Survey and the Establishment Survey are telling us is of some concern. So we took a look at the ol’ net birth/death algorithm for clues (it adjusts the Establishment Survey data). Note below that the birth/death adjustment for the aggregate of professional and business services, and education and health services in October was +81,000 – over half of the establishment survey’s gains (and nearly 50,000 jobs higher than the average of +32,500 for August and September). We know that the NBDA has not had a very good track record during this recessionary and post-recessionary period.

Structurally, it is also useful to note that the increase in the number of unemployed, and number of people exiting the workforce, came nearly entirely from the statistical cadre over 25 with a college degree of higher – (labour force dropping by 332,000, unemployed rising by 97,000). Higher paying jobs continue to shrink, lower paying service sector employers hiring cheap labour. Sticky wages starting to get unstuck as unemployed become more hopeless? This would be a deflationary signal. Keep an eye on that hourly wage number going forward.